O2 Germany IPO wins investor support, but price war worries mount

Telefónica's initial public offering of its O2 Germany subsidiary has been a notable success, with the shares closing up 4 per cent in the first day's trading. The IPO was the largest in Europe so far in 2012.

The Spanish operator sold 23 per cent of its Germany unit, including an overallotment option, for €5.60 a share, raising €1.45 billion toward lowering its huge €58 billion debt mountain.

While the IPO has been hailed as evidence of a re-emergence in the European IPO market, an unnamed Frankfurt-based trader said that shares in O2 Germany were still toward the bottom of Telefónica's original €5.25 to €6.50 price range, according to Reuters.

Analysts at Espirito Santo Investment Bank were also worried about the IPO price: "Investors appear to have demanded a discount given Telefónica's position as a forced seller, the uncertainty surrounding its future plans for Telefónica Germany, limited prospects for in-market consolidation and recent comments by local competitors indicating a deteriorating pricing environment," they told Reuters.

Heinrich Ey, a fund manager at Allianz Global Investors in Frankfurt, told Bloomberg that Germany remains one of Europe's better markets for mobile, but added: "However, competition could raise challenges down the road, especially if a cut on mobile termination rates triggers a price war among the smaller rivals."

This viewpoint was dismissed by O2 Germany CEO Rene Schuster, who told Bloomberg that "the European economy is in a much better place than three years ago even if we are not out of the woods yet. I don't think there will be another price war in Germany. What we will see and what we want is the introduction of inexpensive smartphones--maybe as low as €50."

Schuster also downplayed speculation that O2 Germany was considering a network sharing agreement with E-Plus. "The whole sector is talking to each other," Schuster said in a speech at the Frankfurt Stock Exchange, according to Bloomberg. "There is nothing at the moment--we are focused on the IPO, the Christmas business and then we will see next year."

For more:
- see this Reuters article
- see this Bloomberg article
- see this Financial Times article (sub. req.)

Related Articles:
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O2 Germany, E-Plus may move toward network sharing deal
Report: O2 Germany's IPO already oversubscribed as funds rush in
Report: Telefónica strips €4.3B in cash from O2 Germany ahead of IPO
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